Canada's reliance on its oil sands goes back some twenty years and the oil sands still account for some two-thirds of Canada's 4.2 million barrels per day of crude. But times are rapidly changing and the growth in U.S. shale production, with its new drilling techniques and lower production costs, is bringing the era of new large oil sands projects to an end.

But now Canadian producers and global oil majors are starting to develop their own shale oil "boom" with new developments in its own shale fields such as Duvernay and Montney, which, apparently, could end up rivalling the U.S. shale fields. Canada is the first country outside the United States to start large-scale development of shale resources.

Canada has the right kind of prerequisites to facilitate shale oil development including plentiful private energy companies, mature financial markets, oil industry infrastructure, and low populations in the shale regions. This is attracting a number of global majors including both Royal Dutch Shell and ConocoPhillips who have already pulled out of oil sands last year. Also Chevron Corp and Shell will invest more money this year in the Duvernay region.

"The potential is absolutely huge," said Mark Salkeld, president of the Petroleum Services Association of Canada. "The only thing holding us back is access to market and the cost."

Market:Having seen a tremendous rise in oil prices over the last 2 months, the question now is whether there remains bullish sentiment to drive this further. Certainly, the daily price action still shows a strong upwards trend, but the shorter period charts are showing signs of slowing down/weakness.

It still seems likely that we are now entering a period of consolidation with maybe a wide range driven by news of increased production here and there on one hand, and a buoyant global demand for oil products on the other. A healthy market for any speculative trader.

but the shorter period charts are showing signs of slowing down/weakness.

This weakness was the dominant direction yesterday even before the API inventories release at the end of the US session. The hourly chart was already demonstrating this weakness and increased its downward momentum once we broke the daily trendline:

Notebook:The API release Tues reported a build in Crude Oil inventories of 3.229 mill barrels and another build in Gasoline inventories of 2.692 mill barrels for the week ending January 23. Analysts had expected builds but smaller figures for both of these.

Later today we have the EIA figures.

Whilst the overall consensus is that global oil inventories are approaching balance, attention is being drawn towards the likelihood that US production levels may rise above the 10 mill bpd even by this week. Production was reported at 9.878 mill bpd, being yet another new high.

The analyst projections are really extreme right now with some predicting a major soar towards USD 78 (Brent) whilst others are looking at the record bullish positions in future and predicting a crash back to USD 60 very soon.

The impact of a rapid increase in prices starts to raise fears of sharp increases in inflation, increased manufacturing costs and a negative drag on economic growth. But it also greatly increases the urge of producers to drive up output to take advantage of the bigger profits and thereby flooding the market at the same time as demand begins to feel the pinch of higher prices.

Notebook:The Crude Oil market's equivalent of the forex's monthly NFP, i.e. the weekly EIA inventories and production data, gave an interesting insight yesterday into where market sentiment lies at present.

Against a broad background of bullish talk amongst investment banks, the EIA reported a surprise, potentially negative, 6.8 mill barrels build in U.S. crude oil inventories for last week. And this followed yesterday's surprise build data from the API. Since the near term price action has been weak for a few days, this data immediately sparked a sharp spike downwards. However, this was quickly bought into and we saw a few hours of frenetic seesawing. But gradually the buying neutered out the impact of the data and we saw a steady rise in price towards the day's close. A drop in gasoline stockpiles of 2 mill from a build of 3.1 mill barrels last week also helped support prices.

One lesson that I have learnt a long time ago is that if an already weak market does not go down on negative news then it is going up (and vice versa). But in this case, we have only risen (so far) back to the previous support-turned- resistance level below the broken uptrend. I am still inclined to expect a period of very broad consolidation between recent highs and lows for the near term.

There is no doubt that the US shale market is a huge game-changer in the global markets with its major advances in horizontal drilling techniques and low costs. The US production is now in the same league as the other global market leaders, Saudi Arabia and Russia. But when we also consider that the US is now able to rapidly increase its oil exports after the export restrictions were lifted in 2015, combined with the benefit of the current wide price differential between WTI and Brent benchmarks, then the US is now a major factor in oil exports as well as in terms of domestic energy independence.

Another interesting development concerns the recent major cuts in business taxes in the US. This is drawing new investment money into the US oil industry, Canadian drilling rigs are apparently being moved south to the US shale regions and even Saudi Arabia is now investing more in US companies. Aramco’s CEO is quoted as saying that "the tax cuts combined with clear political support for the oil industry makes investing in the U.S. much more attractive. The whole oil industry is benefiting from the current administration,” Saudi Aramco already controls the Motiva refinery in Texas, which is the largest in the US.

Market:Yesterday's EIA release caused some energetic seesaw action which produced some handsome tails under the hourly candles, showing strong buying into the dips. I also sold after the news on the basis that the price weakness would now continue, but had to cut it in the next hour at a loss as it was clearly going nowhere on the downside. After a couple of hours, the hourly chart turned mildly positive as a result of this buying and so I went long (being my preferred direction in commodity trading). Fortunately, the day continued with a steady rise into the close and I managed to close out with a net profit on the day.

The price managed to climb back to the previous bottom of the daily uptrend which, I guess, is now something of a resistance level.(It is worth remembering that we have not been at these price levels since 2014, and so there are no realistic S/R levels from recent times).

Considering there is a strong balance in news between significant increases in US production on the supply side and upbeat comments on strong global economic growth on the demand side, I am still anticipating a broad consolidation for the near months. I wouldn't be surprised to see an up-day today but since we have only just broken that uptrend on the daily, I don't have a strong directional view and will only trade off the hourly signals until a trend continuation/reversal manifests itself on the daily chart.

...and an up-day we got....and it was one of those extremely easy/frustratingly difficult days, depending on how one traded it!

Why "frustratingly difficult"? Well, the day started off well with a quick rise in the early london session, giving a quick 35-pip start to the new month. - but then the market went into a 6 hour dose of the wobbles offering no confident entry level at all - that is a long ,boring, period to be on watch duty! But then came the lovely tail in the circle below and that signalled the next entry - and a good follow-through back to (just) above USD 66 (WTI). All in all, a great start to the month.

Why "extremely easy"? Well, if one trades a longer term view then this was a simple case of buy in the morning and go fishing and see where it is at EOD. More profit, less spread loss, less stress and maybe even some fish......

But then there are many more days with smaller and less unidirectional moves than yesterday and I still prefer to keep one eye on the hourlies.

Today is NFP day and, although this does not usually produce quite the same degree of impact in oil as it can do in forex, Crude has also been loosely and inversely following the dollar weakness recently and there could be a response here too.

Also, last friday saw a big increase in new oil rigs count - up by 12. So eyes will also be watching this week's figure late today........

NOTEBOOK:Interesting to note that Goldman Sachs has now also joined the ranks of the bullish investment banks alongside the likes of JP Morgan, and has raised its outlook for 2018 saying Brent prices could reach $82.50 by the summer.

This is based on their observations that oil inventories have declined much faster than expected, strong global demand, high OPEC compliance, refinery maintenance season and a steep decline in Venezuelan production.

MARKET:Yesterday's price movements gave further evidence to my current view that whilst the long term trend is still upwards, the near term uptrend has been broken and we are likely to see some broad swinging between recent extremes. Yesterday was a total non-event for long term positions and finished lower on the week, but was a good day for trades in both directions for short-term/day-trades.

The weekly chart shows a rather insignificant inside week within an intact uptrend that has now continued since late summer 2017:

But the 4- hourly chart shows some very tradeable swings in both directions without any break of the recent highs/lows. When we remember that these swings are some 200-300 pips then they are very tradeable.

NOTEBOOK: There are currently powerful arguments on both sides of the supply/demand equation with the surging output from U.S. shale and a return to increases in inventories after weeks of drawdowns on one side and strong economic growth, current high OPEC compliance and falling Venezuelan production on the other. For example:

The EIA said this week that U.S. oil production surpassed 10 mb/d in November, just shy of the all-time high set decades ago.

U.S. crude inventories also jumped last week, the first time that has occurred in several months.

Goldman Sachs revised its forecast for oil prices this year, stating “The rebalancing of the oil market has likely been achieved, six months sooner than we had expected.” The bank predicts that prices will exceed $80 per barrel by the summer.

OPEC compliance rate is currently at 138 percent, partly due to the meltdown from Venezuela production.

All in all, although the overall, longer term direction may be clear, the route there is hardly likely to follow the "straight and narrow":

Something like half of the world's total oil/petroleum supplies are moved by large tankers along set maritime routes. Many of these routes pass through constricted areas and form significant, and vulnerable, maritime chokepoints. There are eight recognised major oil chokepoints throughout the world and if any one of these chokepoints were disrupted, ships would need to travel thousands of miles to reach an alternate route.

Strait of Hormuz - the world's primary oil chokepoint.Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Oil from Saudi Arabia, the UAE, Qatar, Iran, and Iraq all pass through here and head mostly towards Asia, although tankers can also head west towards the Suez Canal and the Red Sea.

At its narrowest point, the Strait of Hormuz is 21 miles wide, but the width of the shipping lane in either direction is only two miles wide, separated by a two-mile buffer zone. The Strait of Hormuz is deep and wide enough to handle the world's largest crude oil tankers.

Most potential options to bypass Hormuz are currently not operational. Only Saudi Arabia and the United Arab Emirates (UAE) presently have pipelines able to ship crude oil outside of the Persian Gulf and have additional pipeline capacity to circumvent the Strait of Hormuz.

Strait of MalaccaThe Strait of Malacca, located between Indonesia, Malaysia, and Singapore, is the shortest waterway which connects the Indian Ocean to the South China Sea and the Pacific Ocean. Fuel from the Middle East heads primarily towards Indonesia, China, and Japan.

The Strait of Malacca is also one of the most narrow chokepoints in the world. Its narrowest point is only 1.7 miles wide, which creates a natural bottleneck for shipping, with potential for collisions, grounding, or oil spills. If the Strait of Malacca were blocked, nearly half of the world's fleet would be required to reroute around the Indonesian archipelago. Rerouting would tie up global shipping capacity, adding to shipping costs and potentially having a significant impact on energy prices.

Cape of Good HopeThe Cape of Good Hope is located at the southernmost tip of Africa. It is not technically a chokepoint since it's open on one side but it a significant transit point for oil tanker shipments around a critical trade route.

Crude oil moves around the Cape of Good Hope in both directions. Eastbound flows destined for Asian markets and westbound flows mostly destined for the Americas and originating from the Middle East.

The Cape of Good Hope is also an alternative sea route for bypassing the Gulf of Aden, Bab el-Mandeb Straits, and/or the Suez Canal. However, diverting vessels around the Cape of Good Hope would increase costs and shipping time, adding approximately 2,700 miles to transit from Saudi Arabia to the United States.

Bab el-MandabThe Bab el-Mandab is one of the most precarious oil chokepoints in the world right now, situated between the Horn of Africa and the Middle East, and it is a strategic link between the Mediterranean Sea and the Indian Ocean. The strait is located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea. Most exports from the Persian Gulf that transit the Suez Canal and SUMED Pipeline also pass through Bab el-Mandeb.

The Bab el-Mandeb Strait is 18 miles wide at its narrowest point, limiting tanker traffic to two 2-mile-wide channels for inbound and outbound shipments. Closure of the Bab el-Mandeb could keep tankers from the Persian Gulf from reaching the Suez Canal or SUMED Pipeline, diverting them around the southern tip of Africa. In addition, European and North African southbound oil flows could no longer take the most direct route to Asian markets via the Suez Canal and Bab el-Mandeb.

Oil prices took a recent jolt after the Yemeni government collapsed, raising the possibility of a security crisis in the Bab el-Mandab.

Danish StraitsThe Danish Straits, formed out of a series of channels passing around Danish Islands, connects the Baltic Sea in the east to the North Sea in the west. They are an important route for Russian oil exports to Europe. The EIA estimates that 42% of all oil shipped through the Danish Straits originated from the Russian port of Primorsk.

Suez CanalThe Suez Canal passes through Egypt and connects the Red Sea to the Mediterranean. Oil exports from the Persian Gulf countries (Saudi Arabia, Iraq, Kuwait, United Arab Emirates, Iran, Oman, Qatar, and Bahrain) accounts for some 80% percent of Suez Canal northbound oil flows towards European and North American markets. The remaining southbound flows are primarily toward Asian markets.

The Suez Canal was expanded in 2010 to allow 60% of all tankers in the world to effectively pass through but it is unable to handle Ultra Large Crude Carriers (ULCC) and fully laden Very Large Crude Carriers (VLCC) class crude oil tankers. Security also remains a primary concern to cargo ships passing through the region.

Turkish Straits (Bosporus and Dardanelles)The Turkish Straits, including the Bosporus and Dardanelles waterways, divide Asia from Europe. The Bosporus is a 17-mile long waterway connecting the Black Sea with the Sea of Marmara. The Dardanelles is a 40-mile waterway connecting the Sea of Marmara with the Aegean and Mediterranean Seas. Both are located in Turkey and supply Western and Southern Europe with oil from Russia and the Caspian Sea Region.

Only half a mile wide at the narrowest point, the Turkish Straits are among the world's most difficult waterways to navigate because of their sinuous geography. About 48,000 vessels transit the straits each year, making this area one of the world's busiest maritime chokepoints.

Panama CanalThe Panama Canal is an important route connecting the Pacific Ocean to the Caribbean and ultimately to the Atlantic. The Canal is 50 miles long and only 110 feet wide at its narrowest point. Alternatives to the Panama Canal include the Straits of Magellan, Cape Horn, and Drake Passage at the southern tip of South America, but these routes would significantly increase transit times and costs, adding about 8,000 miles of travel.

MARKET:Friday's NFP data left us with a stronger bias on the USD, and any follow-through on that may reflect on oil prices in the absence of any other more relevant oil news. However Friday's oil move was not unidirectional at all and showed some buying interest at the lows immediately after the data release - but the close was weak and the Asian markets remained limp this morning. This is not surprising since Friday was an indecisive end to an inside week.

I am still anticipating a period of broad consolidation in an otherwise still bullish market longer term (meaning first half 2018). But a lot of things could still put the brakes on further significant rises including a stronger USD and speculation how OPEC countries might begin to unwind their current agreement on restricting production. The risk of certain members and non-members "jumping the gun" and upping their output even before the gate is officially opened to them is very real, especially with higher oil prices.

But near term?Well, the daily is in a neutral state at present and it may require some significant inventories data this week to jump-start it one way or another. The hourly is currently negative, reflecting this neutral stance in the daily charts but that could change very quickly - as it did last Friday. So I am not convinced enough to actually go short, but whilst the short-end charts are negative, there is a good possibility of lower levels to buy at and, as any hunter or photographer knows, it is so often worth waiting ...........

It is not always plain sailing with a clear visible destination ahead. Rather, there are often storms and cloudy weather, both expected and unanticipated, which, unless we want to just stop in our tracks, make us trust, and indeed rely on, navigating with just our Instruments..............

Sorry about the "Candy" charts... as some say here, these should just be dumped in the bin. But seeing as nowadays most conversation on BP is about each other (and not so prettily either) rather than actual trading, views and examples, I'll just stick with my"candy" and just move on. You who matter know where to.....

Ive started again and mixed results so far from it, the fundamentals are the issue im thinking as PAT isnt working for me on crude oil

Looking at the charts and working in Trends im currently looking at an order entry of 50 pips both long and short and then a trend should move off with a tp for a further 50 pips...then i cancel the other order and so far so good i must admit and supported by the market place information

Hi Manxx, Just to say I have really enjoyed reading your posts. It is the reason I joined Babypips. I find your comments interesting as I work for an oil major and trade for fun.

Thank you for your kind words! But are you serious????? That is the reason you joined here? If I'd known that I would have concentrated on writing something sensible instead of my usual waffle!

Sounds like you have the best of both worlds - an interesting job in the oil industry and the freedom to trade your own account. That was not allowed when I worked in banking, at least not for those involved in trading in the forex dept.

What kind of trading are you doing?

I haven't been posting here on this thread for about a month now. But this has been a nice place to post thoughts about Crude during the learning phase as there is generally little interest, being a forex site, and therefore little worry about leading others astray! But Oil is still very much my main interest and I'm now contemplating moving to futures.

But it has been a really good market since I last was here. I was anticipating then that we would see a period of broad consolidation which has shown up well on the timeframe combination that I concentrate on (Daily/4H) as can be seen from the candy charts:

It is your "waffle" as you put it that makes it interesting. Like your comment about not going into a trade because of all the wicks putting you off. That is reality for me. You have your feet firmly attached to the ground. As for my trading I used to do stock options, and some forex, but I am just starting to dip my toe into the water with cfd's on WTI.

A wonderful book on for those who want to learn more about the commodities is by Denys Hickey "Oil and Gas Trading". It touches subjects on international law, sales, derivates and stock market. Includes many case studies since 1970s. A very comprehensive and informative guide book. I remember reading it in my studies and still find it sometimes useful to refer to. You can buy it on Amazon, but it is very costly. Might be cheaper on eBay.